Mexican economy


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Mexican economy

  1. 1. Economic Analysis of Mexico A Course Presentation by Group 8 Areeb Shaarique 13P128 Shreyas Desai 13P138 Karthic Subramanian 13P147 Raghavender Sridhar 13P157 Shivam Atri 13P167 Tarun Gupta 13P177
  2. 2. Contents • • • • • • • Mexican Timeline Country Overview Economic Growth North America Free Trade Agreement Macro-economic Indicators Fiscal Policy Challenges Faced Currently
  3. 3. Mexican Timeline 1930’s to 1970’s 1980’s to 2000’s 2000’s to present Economic • A golden period of Mexican economy dubbed as the “Mexican Miracle” A period of strong economic growth • International panorama changed : Oil prices plunged, interest rates rose, Banking system nationalized along with several other industries • Government policies tried to make Mexico one of the most economically open countries in the world • The country experienced an economic boom during which industries rapidly expanded their production • Protectionist measures had made the industrial sector uncompetitive with low productivity gains • Total trade with Canada and USA tripled and total imports and exports quadrupled between 1991 and 2003 Political •Turnaround happened due to a strong and stable government. •Economic crisis in 1994 •Post 1994 NAFTA agreement and lowering of trade barriers • 2009 – World Financial Crisis •2013 – President Enrique Pena Nieto vows to increase government spending
  4. 4. Country Overview       • • #13 based on nominal terms #11 based on PPP Positive but low rates of growth Reduced inflation and very low interest rates and has increased Percapita income considerably Export oriented economy, more than 90% of Mexican trade is under the Free Trade agreement of 1994 with over 40 countries Labor force of 78 million (Mexicans were rated as the most hardworking people in the world) The new government has set an ambitious course of economic and social reforms Economic growth remains insufficient and more needs to be done to improve well-being
  5. 5. North American Free Trade Agreement(1994) • An agreement signed by Canada, Mexico, and the U.S, creating a trilateral trade block in North America • The goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada and Mexico • The United States is, by far, Mexico’s leading partner in merchandise trade • U.S. exports to Mexico increased rapidly since NAFTA, increasing from $41.6 billion in 1993 to $216.3 billion in 2012 • U.S. imports from Mexico increased from $39.9 billion in 1993 to $277.7 billion in 2012, an increase of 596%
  6. 6. NAFTA affect on Mexican Economy Advantage • NAFTA helped Mexican manufacturers adapt to U.S. technological innovations more quickly • Had positive impacts on the number and quality of jobs; reduced macroeconomic volatility, or wide variations in the GDP growth rate, in Mexico • Almost 70% of U.S. imports from Mexico and 50% of U.S. exports to Mexico received duty-free treatment • NAFTA has reinforced the high sensitivity of Mexican economic sectors to economic developments in the United States
  7. 7. NAFTA affect on Mexican Economy Disadvantages • Maquiladora Workers Were Exploited • Rural Mexican farmers could not compete with low-cost corn and other grains that were exported by subsidized U.S • NAFTA may have eliminated tariffs between the U.S., Canada and Mexico, but it didn't do away with the numerous customs regulation that can stifle trade • NAFTA has caused a higher amount of worker displacement in agriculture sector than in other economic sectors • When NAFTA removed tariffs, corn and other grains were exported to Mexico below cost, Rural Mexican farmers could not compete
  8. 8. Macro-Economic Indicators
  9. 9. Capital Inflows and Interest rate
  10. 10. Mexico’s GDP at constant prices
  11. 11. Mexico GDP
  12. 12. GDP growth rate of Mexico • In the third quarter of 2013, Mexican economy expanded at a faster-than-expected 1.3 percent over a year earlier • Growth in manufacturing accelerated, partially offsetting a slowdown in agricultural production • The economy recovered from a 0.55 percent contraction in the previous three-month period • There was a surge in manufacturing and services
  13. 13. long-term Economic Growth • The Economy growing at faster than potential rate since 2010 • Growth has been supported by expanding domestic demand and export market penetration • Growth will slow in 2013 due to weak recovery in the U.S , destination for more than ¾ non oil exports • New legislation and regulatory reform are needed to remove barriers to market entry, reduce corruption and make the civil justice system more effective
  14. 14. Consumer spending
  15. 15. Fiscal policy • While fiscal policy continues to be prudent, public debt has increased during the recession • Fiscal policy narrowed the deficits strengthening the credibility of Mexico's macroeconomic framework • The government budget is overly dependent on oil • The government aims a balanced budget this year which excludes oil investment in state oil company • The public sector borrowing requirement, a measure of combined deficit of the federal government and its enterprise would still show a deficit of 2.4% of GDP
  16. 16. Government Spending in Mexico
  17. 17. Mexico Current account deficit
  18. 18. Challenges Faced Currently Judicial system vulnerable to political interference Property rights not strongly protected Corruption undermines long-term institutional competitiveness Extensive reform measures undertaken but still marginal progress • Ranked 104th on Corruption Perceptions Index 2012 (CPI 2012) • Reforms undertaken in 1982 and 1994 to avert crisis but didn’t create dynamic economy
  19. 19. The “Sexenio Curse” Year GDP presidential term 1994, last year of Carlos Salinas de Gortari 4.7% 1995, first year of Ernesto Zedillo • Sexenio refers to the six-year -5.8% • Downturn in economic activity with every change of government administration 2000, last year of Ernesto Zedillo 5.3% 2001, first Year of Vicente Fox -0.6% 2006, last year of Vicente Fox 5.0% • Currency and balance of payment crises in previous years result of faulty domestic policies 2007, first year of Felipe Calderón 3.1% 2012, last year of Felipe Calderón 3.8% 2013, first year of Enrique Peña Nieto 1.2%* • Current slowdown a combination of external and domestic factors
  20. 20. Slowdown in 2013 Growth outlook slashed from 2.9% to 1.2% (IMF, 19th Nov) • Low government spending • Due to delays in budget execution under new govt. Drop in Construction output by 8.3% YoY • Industrial output fell 1.6% in September from last year while forecasted was 0.4% (Bloomberg) Slack demand for local exports Drop in remittances from Mexicans living abroad • NAFTA helped Mexico turn into exporter of computers, cars and fridges, contribute to almost 32% of GDP • $20 billion worth of remittances bolster consumption
  21. 21. The Road Ahead Government stabilizing and introducing more measures • Energy reform bill introduced to allow greater public and private investment in the sector • Need labor and fiscal reforms to supplement energy reforms Growth projected to recover gradually to 3% in 2014 • Manufacturing sector to recover due to increased US demand • Public spending to gain momentum • Structural reforms implemented now would bear fruit
  22. 22. References • p-growth • o/overview •
  23. 23. THANK YOU